Justice Department Should Drop Apple Lawsuit

The Justice Department sued Apple and five major publishers this morning over their e-book pricing policies. Under their current contracts, a book’s publisher sets the price, and Apple gets 30 percent of the revenues. DoJ believes this is collusion. In a CEI press release, Wayne Crews and I explain why the lawsuit is a mistake, and should be dropped. Here’s Wayne:

“The complaint against Apple seems to be that collusion and smoke-filled rooms paved the way to a deal by which Apple gets a 30 percent cut of the publishers’ e-books sold for Apple devices, while other vendors are forbidden from selling below that pre-specified price. Such ordinary business deals, you see, involve a now-disparaged free market instrument called a ‘contract.’

“This arrangement appears to have been a normal response to Amazon’s deep discounts of e-books below physical book prices. DoJ’s solution is presumably to stop free enterprise, and allow Amazon to dominate e-books? Now, thanks to DoJ getting involved, competitors need not respond to to Apple and the publishers to better serve consumers and shareholders.”

And here’s my take:

“Given Amazon’s much larger share of the e-book market, Apple is hardly in a position to price its products uncompetitively. If consumers feel overcharged, they can easily give their business to Amazon or Barnes & Noble instead – possibly by using Apple’s own products!

“Five years ago, the e-book market didn’t even exist. Now it has a variety of competitors, each of whom are trying out new, different, and evolving business models. Consumers are much better positioned to reward good pricing models and punish bad ones than are Justice Department attorneys.

“This lawsuit is further evidence of how poorly smokestack-era antitrust policies fit our information age economy. E-book manufacturers and publishers are trying and discarding different business models at a fast rate as they figure out what works and what doesn’t. By the time the wheels of justice slowly creak to a verdict, Apple, Penguin, Simon & Schuster, and the other defendants will have long since moved on to some other pricing policy. The Justice Department should admit its mistake and drop the lawsuit.”

One response to “Justice Department Should Drop Apple Lawsuit”

“Given Amazon’s much larger share of the e-book market, Apple is hardly in a position to price its products uncompetitively. If consumers feel overcharged, they can easily give their business to Amazon or Barnes & Noble instead – possibly by using Apple’s own products!”

This misses the point of the issue … consumers cannot easily give their business elsewhere if they feel they’re overcharged, because the pricing model was changed by those five publishers to set the price, not the reseller. Amazon or anyone else is prohibited from selling the book at any other price, even if they want to.

With a hardcover book, Amazon buys it for $x and can sell it for any price they wish, even at a loss. With eBooks now, they must charge the price set by the publisher and there is NO competition whatsoever on price between the resellers.